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Documents filed by antitrust regulators in a U.S. court this week have finally shed some light on one of the cloud computing industry’s biggest secrets: the true size of Microsoft Corp.’s Azure cloud business unit.
A report today from The Information revealed that internal documents were briefly posted by federal antitrust regulators on a court website, showing that Azure generated about half of the revenue of Microsoft’s primary rival, Amazon Web Services Inc., in the 12 months ended June 2022. The documents were later removed from the court website.
Microsoft has kept the true size of its Azure cloud business unit as a closely held secret for years, preventing investors from understanding just how well it stacks up against AWS, which is widely considered to be the industry leader.
However, the unredacted documents showed that Azure generated $34 billion in revenue over that 12-month period, compared with $72 billion by AWS over the same time frame.
The revelation may come as a shock to some investors, as it means Azure’s market share in the cloud computing infrastructure business is several percentage points smaller than what most analyst firms had estimated. The Information says that the number may change investors’ perceptions of Microsoft’s cloud success, the implication being that officials have claimed it is more successful than it really is.
Unlike AWS and Google Cloud, which is believed to be the industry’s No. 3 operator, Microsoft has always refused to disclose Azure’s true revenue. Instead, Microsoft reports Azure’s numbers within its Intelligent Cloud business segment, bundled together with its Enterprise Services, Windows Server and SQL Server revenue.
In its most recent third quarter fiscal 2023 earnings report, revenue from Intelligent Cloud came to $22.08 billion, up 16% from a year earlier and above Wall Street’s forecast of $21.94 billion. But investors had no way of knowing how much of that figure was generated by Azure.
Constellation Research Inc. analyst Holger Mueller called on Microsoft to consider finally disclosing Azure’s revenue to clear up investor’s concerns regarding any creative revenue attribution it might be doing. “Large software vendors have been found to be doing this more than once in the past, and while there’s no suggestion Microsoft is involved in any funny business, the only way to stay above such concerns is with greater transparency,” he said. “Microsoft is not obliged to share Azure revenue, but such transparency would be appreciated by customers and investors alike.”
Increased transparency would also shed more light on the profitability of the Azure business. Although the court filing reveals Azure’s revenue, there’s still no evidence to say whether or not the Azure business was profitable over the period ending June 2022. AWS has posted big profits from its cloud business since 2014, but Google Cloud has been far less successful, though in May it finally managed to post its first-ever profit.
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